FCC Blocks EchoStar, Hughes Merger On October 10, 2002, the FCC voted, 4-0, to block a proposed…

FCC Blocks EchoStar, Hughes Merger

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 On October 10, 2002, the FCC voted, 4-0, to block a
proposed $18.8 billion merger of the two largest satellite TV companies in the
U.S. The Commission stated that the merger would create a virtual monopoly that
would be particularly harmful to millions of Americans without access to cable
television. Living largely in rural areas, such Americans would have no viable
alternative to subscribing to a satellite TV hook-up. This was the first time
the Commission had blocked a major media merger since 1967. The companies were
also facing opposition from the Justice Department and 23 states that were
seeking to block the merger. EchoStar manages the DISH Network, while Hughes
operates DirecTV. Together they serve about 18 million subscribers and, if
allowed, would have been the largest pay-television service. The two companies
had argued that the merger is needed to offset competition from cable TV. In
presenting the proposal to the Commission, the companies offered to maintain
uniform pricing nationwide to ease fears they would gouge consumers where no
alternative is available. While expressing disappointment, the two firms
pledged to work with the Commission to achieve approval. On November 30, 2002,
EchoStar and Hughes offered to sell more assets to help create a viable
satellite-television rival to overcome the regulators’ opposition. The
companies proposed selling 62 frequencies to Cablevision Systems Corporation. Continued
opposition from the FCC, Justice Department, and numerous states caused Hughes
and EchoStar to terminate the merger on December 14, 2002.

Case Study Discussion Questions

1. Why do you believe the regulators continued to oppose the
merger after EchoStar and Hughes agreed to help establish a competitor?

2. What alternatives could the regulators have proposed that
might have made the merger acceptable?

3. Compare and contrast the different outcomes. Why do you
think the FCC came to different conclusions in the two cases? Explain your
answer.

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